Darrell Diodato was employed by Wells Fargo Insurance for thirty-six years as an insurance producer, servicing existing insurance business and originating new insurance business. He specialized in brokering insurance for bowling alleys and family entertainment centers, developing “numerous personal and business relationships with owners” and considering himself to be “the godfather” of the bowling alley insurance industry. Approximately 70% of the revenue he generated was derived from bowling center owners and operators. He signed a trade secret/nondisclosure/nonsolicitation agreement in 2009, allegedly at threat of losing his job.

Wells Fargo fired him in 2011; the parties’ accounts of why diverged drastically, with Wells Fargo claiming job-related misbehavior and Diodato claiming they wanted to get his book of business without having to pay him.After the termination, Wells Fargo distributed about 53 insurance-related documents which identified Diodato as the producer on their respective accounts. (Advertising or promotion?) Wells Fargo continued to run advertisements in Roller Skating Business using Diodato’s name until at least February of 2012 and continued to identify him as a producer on the Wells Fargo website months after his termination.

Diodato subsequently began working with Wells Fargo competitors. He denied that he solicited business from former Wells Fargo clients, but admitted that he maintained relationships with them and told them how to switch to his new business if they asked. Many of the clients he serviced at Wells Fargo indeed “left or removed their accounts from [Wells Fargo] in the period following [his] termination.” Wells Fargo sent cease and desist letters to the competitors, alleging Diodato’s breach of the nonsolicitation agreement and demanding that each ensure Diodato’s compliance with the agreement’s terms.

The court granted summary judgment on Diodato’s fraudulent inducement, breach of contract, and breach of the duty of good faith & fair dealing claims. The unjust enrichment claim also failed because Diodato failed to show that Wells Fargo received an uncompensated benefit from him.

Defamation/commercial disparagement: Diodato alleged three different types of defamation: that his superior informed a Wells Fargo business manager, that Diodato’s actions were “not in Wells Fargo’s best interests”; that the superior “painted a picture” to the head underwriter for an insurer that Diodato’s “business practices were suspect and that he was insubordinate”; and that Wells Fargo’s counsel advised the competitors that Diodato was in violation of the nonsolicitation agreement. The first statement was merely opinion: it was “ambiguous, obscure, and does not imply the existence of specific defamatory facts.” The “best interests” statement didn’t imply a violation of any particular duty or other responsibility as a Wells Fargo employee. However, Wells Fargo didn’t get rid of the “suspect/insubordinate” claim because its only argument was that Diodato failed to sufficiently identify an actual statement. The record showed that the challenged meeting occurred and that Diodato was explicitly described as “insubordinate” and his business practices as “suspect.” As for the C&Ds, Wells Fargo successfully asserted a “competitors privilege.” See Gresh v. Potter McCune Co., 235 Pa.Super. 537, 344 A.2d 540 (1975). In such circumstances, a conditional privilege applied, and Diodato failed to show abuse of the privilege, given Wells Fargo’s argument that it reasonably believed that its efforts were necessary to protect its legitimate and protectable interests as identified in the nonsolicitation agreement.

However, the agreement’s post-employment prohibition on “accepting the unsolicited business of former clients” was broader than necessary to protect against Wells Fargo’s legitimate concerns, and struck it as unenforceable as a matter of law.

Diodato’s claim for violation of §43(a)(1)(B) survived because Wells Fargo only made arguments about §43(a)(1)(A); his claims were based on Wells Fargo’s continued use of his name on its website for nearly seven months after Diodato’s termination and its continued use of his name as its representative in Roller Skating Business after his termination. The complaint clearly alleged a “false or misleading description of representation or fact,” and expressly stated the statutory requirements of both a false designation claim and a false advertising claim. While Diodato abandoned his §43(a)(1)(A) claim, Wells Fargo had notice of the false advertising claim and it therefore survived summary judgment. (It seems extremely unlikely that someone who can’t win a §43(a)(1)(A) claim could show the extra elements of commercial advertising or promotion plus materiality.) The Pennsylvania common law of unfair competition tracks the Lanham Act, so that survived too.

Diodato’s statutory claim for unauthorized use of his name, in violation of Pennsylvania’s Unauthorized Use of Name or Likeness statute survived. That law creates a cause of action for any “person whose name or likeness has commercial value and is used for any commercial or advertising purpose without written consent....” Diodato sufficiently established commercial value in his name. “The record reveals that Diodato has developed long-standing personal relationships with many of the clients he serviced while working for Wells Fargo, and he argues that, in the context of the roller skating and bowling alley insurance businesses, his name ‘has significant commercial value.’” He averred that, over the course of more than 30 years, (1) he spent his own money supporting various fundraising activities; (2) he entertained contacts at annual industry meetings; and (3) he paid $12,000 annually from his own commission revenue to account for costs relating to Wells Fargo’s endorsement of a bowling industry organization. This would allow a trier of fact to find that he expended time, effort, and money “in excess of what any salesperson does to generate customers.”

The court denied summary judgment on Wells Fargo’s breach of contract counterclaim; a jury had to decide exactly what role Diodato played in the transition of his former clients’ business. Wells Fargo lost its trade secret claim because it didn’t provide evidence showing exactly what information it believed Diodato misappropriated or the manner in which he did so. Finally, the gist of the action doctrine barred Wells Fargo’s remaining tort claims for unfair competition, conversion, and tortious interference with existing and prospective contractual relations, because these claims were derivative of its breach of contract claim.

Marketquest sued BIC for infringing its registrations for ALL-IN-ONE
and THE WRITE CHOICE for, among other things, pens.BIC included “The Write Pen Choice” in online
advertising and displays for writing instruments, including its pens, in 2010. The
ads included BIC ® and ROUND STIC ® at the top of the page, followed by “The WRITE
Pen Choice for 30 years!,” unaccompanied by either TM or ®. A BIC subsidiary that sells promotional
products, Norwood, included the phrase "All in ONE" on its 2011
product catalogue. Norwood ® was printed in a larger font on the cover of the
catalogue, and “All in ONE” appeared below and to the right of it.

Bic write choice ad

The court initially determined that these uses had “some
likelihood of confusion” and the “potential” for infringement and the case
proceeded to summary judgment, which BIC then won on fair use.Fair use requires descriptive use, other than
as a mark, fairly and in good faith only to describe the defendant’s goods or
services.Some possibility of confusion
is compatible with fair use, since the existence of the defense reflects “the
undesirability of allowing anyone to obtain a complete monopoly on use of a
descriptive term simply by grabbing it first.”The Ninth Circuit has said that the degree of consumer confusion remains
a factor, along with “the strength of the trademark, the descriptive nature of
the term for the product or service being offered by [the plaintiff] and the
availability of alternate descriptive terms, the extent of the use of the term
prior to the registration of the trademark, and any differences among the times
and contexts in which [the plaintiff] has used the term.”(Follow along and see how many of these the
court considers—which says more about the undesirability of the Ninth Circuit’s
laundry list than the quality of the district court’s analysis here.)

As for “All in ONE,” the court found that it had the meaning
“an entity or object which combines all the required or appropriate elements,
items, or functions in one” for over 130 years.All didn’t mean “everything,” but “everything appropriate.” Marketquest
argued that “all in one” wasn’t descriptive because Norwood “produced other
catalogs in addition to their `all in ONE' Catalog that year which featured
their housemarks and sub-brands.”So
what?“All in one” meant “appropriately
consolidated.” “Trademark fair use is designed to protect uses of the plain
meanings of common words, and semantic contortions cannot render Norwood's
meaning or use uncommon.”

When a trademark owner claims a descriptive phrase, it
accepts the risk that such marks are weak and that others will make descriptive
fair use of them.Norwood used the
common meaning of “all in one,” other than as a mark.The only remaining issue was BIC’s good
faith.Knowledge of the marks alone was
not enough.“While it is true that a
larger corporation may not roll over a small corporation’s mark, any
organization that imbues secondary meaning to common phrases assumes the risk
that another organization in the same business sphere will use that phrase for
its common meaning. Marketquest was on notice that its ALL-IN-ONE marks were,
by their very nature, susceptible to such confusion.” Marketquest also claimed that the use of both
marks in the same year demonstrated bad faith, but use of two common
descriptive phrases in “wide-ranging marketing materials” was also
insufficient.

Plus, Norwood “largely mitigated the risk of confusion” by
prominently printing its NORWOOD® mark in every location including the phrase. “Spatially,
there is no implied association between the Norwood mark and the All in ONE
descriptor. All in ONE is printed in a standard font, and it is followed by a
list of generic types of items included in the catalog.” Several places in the
catalog also explained the phrase’s context, including: “Our primary product
resource, featuring all product lines in ONE catalog.” Norwood did “everything
possible, short of an explicit disclaimer, to mitigate the risk of confusion,”
and disclaimers aren’t required.

The “write pen choice” fared similarly.There was no evidence of actual or potential
confusion.Marketquest argued that BIC’s
use was suggestive, but “the ‘write choice’ is a trite pun, notable only for
its obviousness.”The words were used
with conventional spacing (rather than something like WriteChoice) and did not denote
a trademark use.The court cited
evidence that advertisers use puns in 10-40% of ads, because consumers feel
pleasure when they solve an easily solved riddle, and they may transfer this
positive affect to the product being advertised.“This simplistic pun is directly related to
BIC’s pen product, and ‘write’ is far more descriptive of a pen than of
Marketquest’s general promotional products business. To preclude BIC from
making this pun would effectively eliminate this avenue of commercial speech.”

BIC took similar measures to reduce the likelihood of
confusion here, including modifying its promotion from “The WRITE choice for
over 30 years!” to “The WRITE Pen Choice for 30 Years!” BIC also “rigorously”
labeled its marks with ® or TM, and used only its house font to write the
phrase. “While Marketquest often uses a nondescript cursive font for ‘the write
choice’ logo, its failure to make a more distinctive mark is again an assumed
risk.” This was undisputedly good faith.

Marketquest also couldn’t suggest a viable alternative for
the phrase.Its suggestion of “the right
choice” “eliminates any pun and begs readers to ask: ‘Why not use the obvious
pun here?’”Its problem, if any, was of
its own making.

Rubenstein bought two items of clothing from the Neiman
Marcus Last Call Store (a discount store, as opposed to the usual upscale
Neiman Marcus store) that was purportedly sold for markedly lower than the
“Compared to” price that a consumer would pay at traditional Neiman Marcus
retail stores. Outlet stores often sell discounted
clothes that are “after season” or clothing that had very little popularity and
did not sell, so consumers have allegedly become accustomed to seeing products
at outlet stores that once were sold at the traditional retail store.Rubenstein alleged that the use of “Neiman
Marcus” in the name of the Last Call Stores caused her and other Last Call
Store shoppers to reasonably believe that the Last Call Stores are outlet
stores of traditional Neiman Marcus retail stores and that the Last Call Stores
sell “after season” and unsold products that were previously sold at
traditional Neiman Marcus retail stores.

Neiman Marcus labels its Last Call products with a tag that
shows a markedly lower price from the “Compared to” price, and Rubenstein
alleged that she and putative class members reasonably believed that this
“Compared to” price represented the price that the exact same product would be
sold at the traditional Neiman Marcus retail store. However, the Last Call
products were manufactured strictly for sale at the Last Call Stores, and
allegedly were of inferior grade and quality to the products sold at the
traditional Neiman Marcus stores. Because the products were never sold at
traditional Neiman Marcus stores, Rubenstein argued that they couldn’t be compared
to any price and that the insinuated discount (and the implied quality) was
false and misleading.

Members of Congress have complained to the FTC about this
practice: “it is a common practice at outlet stores to advertise a retail price
alongside the outlet store price-even on made-for-outlet merchandise that does
not sell at regular retail locations. Since the item was never sold in the
regular retail store or at the retail price, the retail price is impossible to
substantiate. We believe this practice may be a violation of the FTC’s Guides
Against Deceptive Pricing (16 CFR 233).”

In particular, “[u]nlike the use of the words ‘Compared to’
in the context of a regular retail store, where a price comparison might
suggest the price for similar product sold at a competing store, when used in
connection with Defendant’s Last Call outlet store, the words ‘Compared to’ can
reasonably be interpreted by reasonable consumers to be a price comparison with
the price of the exact same product when it was previously for sale at
Defendant’s regular retail store.” Even the name “Last Call” reinforces the
implication that the stores sell products previously available at Neiman Marcus
stores, and in that context, “Compared to” allegedly conveyed the message that
these products were formerly sold in regular Neiman Marcus stores for that
price, not just the message that goods of a like grade and quality were sold
somewhere else for that price.

That all seems plausible to me to state a claim for the usual California
claims, but not to the court.The court
didn’t find the “Compared to” tag and “Last Call” name sufficient. It turned to
the FTC’s Guides Against Deceptive Pricing for help. The Guides distinguish
between “former price comparisons,” “retail price comparisons,” and “comparable
value comparisons.”

Former price comparisons indicate
that the retailer formerly offered the good at the listed price, and are
indicated by language such as “Formerly sold at $___” or “Were $10, Now Only
$7.50!” Other language to indicate a former price includes “Regularly,”
“Usually,” “Formerly,” or “Reduced to.” Retail price comparisons indicate that
the same article is sold by other merchants at a particular price, and are
indicated by language such as “Price Elsewhere $10, Our Price $7.50” or “Retail
Value $15.00, My Price $7.50.” Comparable value comparisons merely indicate
that merchandise of “like grade and quality” are sold by the advertiser or
others in the area at the listed price, and can be indicated by language such
as “Comparable Value $15.00.”

Rubenstein’s argument was contrary to the FTC’s
guidance.There was no evidence that
Neiman Marcus affirmatively claimed that its Last Call stores sold merchandise
previously for sale at the flagship stores. “‘Last Call’ could just as easily
refer to the last call for merchandise from a prior season or the last call for
a third-party manufacturer’s clearance items.” (That seems tendentious—it’s
not just as easy to make the jump from Neiman Marcus to another store. Neiman
Marcus’s value proposition is its exclusivity, not that it dines on others’
scraps.) The “Compared to” tags “would most likely be interpreted by a
reasonable consumer as a comparable value comparison.” Thus the complaint didn’t sufficiently allege
misleading advertising techniques or improperly advertising of a former price.

Friday, April 24, 2015

The Motion Picture Association of America, in partnership
with Microsoft and ABC News

Creativity Conference

(File under: you invited me!Also, no surprise, the food was good and the perks nice—you could get
your photo made in a James Bond pose with the swirl around you, among other
things. Stormtroopers accompanied the MPAA intro: is that really the message you
want to send?)

Chris Dodd, MPAA: Film & tv industry = greatest
innovators of the country. 1.9 million jobs dependent on flim & TV
industry. More than 450 unique online services available for legally streaming
movies & TV, more than 100 in the US.MPAA created a website, wheretowatch.com, to find them. Tech &
content support and rely on one another (Microsoft).

Fred Humphries, Microsoft: Industry is sustaining America’s
global competitiveness. Microsoft invests more than $10 billion in R&D each
year. Devoted to empowering 300 million young people.(Wonder about the young people they’re not
devoted to empowering …)Need policies
and programs to enable us to do more—gov’t, entertainment, and tech sectors
discussing future of growth.

Tom Sebroski (sp?), ABC News: ¾ of consumers about to own
smart device.We don’t want to be left
out.Will we be surfing 500 channels or
telling our fridge to play Scandal?ABC News now available on the Apple Watch and
X-Box. We are learning how to tell stories in 6 seconds; storytelling is the
heart of the endeavor. Instantly we’re all storytellers w/power of social media
w/ability to curate and form our own narratives with one click.Charleston, SC footage as example.

Cathy McMorris Rodgers, House Republican Conference Chair

Interviewed by John Carl, White House correspondent for ABC
News

Rodgers: our office looks a lot like a startup, because we
want to encourage that culture.(Oh, for
Evgeny Morozov commenting on this.)

Carl: did fictional portrayals of Washington inspire you?

Rodgers: American history, biographies.(I guess the answer is no.)

Carl: portrayals of Washington are so dark right now—Scandal, House of Cards.

Rodgers: that is a concern; people ask about it.(Earlier she jokingly blamed House of Cards for Congress’s low
approval ratings.) Congress is based on relationships, getting to know each
other and finding common ground. People are hungry to get things done.(Like the TPP, I guess?)

Carl: what’s necessary for creativity to prosper?

Rodgers: Americans taking the risk to fail.Smart, creative people with ideas for
positive impact.(Wow, this is more
anodyne than I thought it could be.)Sometimes the status quo stamps down any new approach on Capitol Hill.
Potential to improve federal gov’t delivery of services—Veterans
Administration.A private company
knocked on my door and said it could help.App providing appointments for doctors that accept your insurance.The VA gives lots of reasons it can’t do
that.Need to embrace new tools.(For a very small fee.)Need to start embracing the ideas of these
companies w/in the gov’t. Education, encouraging blended learning.Bringing tech into the classroom—a student
spends a portion of time one on one w/teacher, a portion in a small group, and
a portion on the computer, watching a video or getting curriculum from
different perspective & taking a test.Kids love it!

Carl: Trade and the TPP.

Rodgers: I’m optimistic it will pass.

Carl: you are giving President authority to make the deal.

Rodgers: in the negotiations, this is different than past
years. Congress laid out a long list of criteria, and has the committees of
jurisdiction allowed to vote up or down if it meets our intent. That provides
more oversight.I’m hopeful.Good vote on Ways & Means.Washington is the most trade-dependent state
in the country.We want to make it here
and export it there.

Jim Williams, FAA manager.Unmanned aircraft. We figured out how to approve these aircraft, but
can’t grant exemption to everyone at once—has to be individual companies.Movie companies were attractive model. (Now we get a drone demo. I think this is also
the Star Wars music playing, which again makes me a tad nervous.I don’t have a lightsaber to fend the drones
off.)

Aerial mob drone guy: drones allow continuous motion across
360 degrees, allowing new film angles, movement along path. Low-altitude aerial
cinematography: crane shots, etc. can be gotten and combined: we can fly
through a front window and out the back door of a building, which is the only
way to get that shot.New creativity,
budget savings—a lot faster to set up.Not just a creative tool—used for many different jobs.We’re very proud that we’re creating new
things with our hands.Can be used to inspect
power lines, turbines, oil pipelines; security robots to monitor a facility;
labor resource.(He’s talking about
creating new jobs but the description is of technologies that will allow
employers to shed jobs.That’s not to
say these innovations are bad, but query what jobs they create.)We feel very creative in that we’re
developing new businesses.

Howard Lukk, Indie Filmmaker and Uber Geek: Most of the
stuff in Back to the Future 2 is
here, except for the flying cars.(He
left out the other part of the quote: “The future
is already here. It’s just not very evenly distributed.”)

Sidhant Gupta, Researcher, Microsoft: What inspired him
growing up was Stargate: SG1.(One of us!) What tech do they have, what’s
next?

Lukk: historically it took 10-15 years for technology to
become commercial (film, radio, TV).But
the creative side doesn’t change in terms of storytelling: that’s still the
core.

Hollywood is wrestling with VR—changing the passive
experience of what the filmmaker wants us to see. VR = look around and see new
things, not just the actors.Audience
can have control. How do we get the story across?

Gupta: in video games, you still have cut scenes with
director controlling. Still trying to figure out how to let the viewer run the
show.

Lukk: most of the time the audience isn’t interested in
selecting its own ending.Game design
and filmmaking are likely to merge.

Gupta: in a game if you don’t do well you criticize
yourself; in a film you criticize the director.

Haptic technologies: trying to use bursts of air so that it
feels like you get feedback from the physical world, e.g. when you hit a curb
in a game. Trying to detect gestures without putting a camera everywhere.

Lukk: computational cinematography: use multiple cameras to
capture different parts of a scene, allowing sophisticated visual effects.(That is very cool.)

Gupta: we are moving towards making medical devices to
diagnose cancer by sensing in the same way.

Daniel H. Marti, U.S. Intellectual Property Enforcement
Coordinator, Executive Office of the President: IP industries accounted for
over 60% of US exports.Recorded music,
software, etc. over $156 billion dollars. That’s why it’s so important to
protect IP and open foreign markets to US creative content.This year’s IP Day theme is “Get Up! Stand
Up!” for music, invoking Bob Marley’s song—an anthem for human rights. Tap into
this spirit/call to action to speak up for artistic communities the world over.
Respect right to make a living off artistic labor, and reject those who believe
that theft of creative output is acceptable.

Creativity = human expression, building communities. Sharing
brings communities together and helps create common identities.(Well, it depends on what you pay, I
guess.)We need to build a safe, secure,
and stable internet.Fostering
multistakeholder processes in which all participants—government, private
sector, civil society—can marginalize antisocial/criminal activity. Stakeholder
responsibility promotes environment conducive to creativity. Promote innovation
in those in the business of connecting creators and consumers. Respecting IP
promotes tech for communicating creativity. Desire to tell stories to wider
audiences has long chain of innovation, creating new industries along the way—print,
film, radio, TV.(Interesting how all of
those industries have an early and sometimes extended history of copying w/out
paying that enabled them to get off the ground.Sauce for the goose?)(Also I am
a little creeped out that he just straight-up introduced a Microsoft ad for its
holotechnology, as if he worked for Microsoft and not for the US
government.Truth in advertising?)

U.S. Representative Karen Bass (CA-37): “I represented Fox
when I was in the state legislature.”Upside
of redistricting, I got Fox back.(So
she is literally the representative from Fox?)Stories and characters once thought unmarketable have been catapulted to
fame: 12 Years a Slave.

Nancy Utley, President, Fox Searchlight Pictures: some
interesting stuff about getting films at film festivals—you could see why she
got into this business.Also discussed
that her movies aren’t very effects-driven/tentpole, and screens are pretty big
at home, so they need to get people to go to theaters/not wait for Netflix.
Sometimes it’s a star, sometime it’s participating in a cultural conversation,
sometimes it’s just very different (Black
Swan), or awards; it’s easier for older people who don’t mind going out as
much.

Evan Ryan, Assistant Secretary of State for Educational
& Cultural Affairs, U.S. Department of State: In Egypt, met with high
school students: one asked “do you see drag races every day?”—his impression of
US was determined by Fast and Furious
films—people who haven’t visited the US think of the US as being its films. No
way to overstate the impact of our media globally.The
Interview of course; House of Cards
is popular among the Chinese leadership, who thinks it’s reality-based.It would be great if film & TV portrayed
other countries/the people of other countries as more complex and human in
their aspirations.

U.S. Representative Rosa DeLauro (CT-3): don’t trivialize
the hard work of these jobs; women don’t get as many bites at the apple as men
do in these jobs. So don’t make them frivolous characters.

This discussion was mainly interesting because of how
ego-boosting it was for non-Hollywood types in DC—what did the shows get right
and wrong—and for Hollywood from DC’s perspective—how important and influential
they are. It’s the entertainment/political/industrial complex.

Nancy Pelosi, House Democratic Leader: Culture, creativity,
good jobs.I had a depressing
realization during her conversation with Chris Dodd: Sarah Palin is probably
not even two standard deviations away from regular politicians on the word
salad scale.Pelosi finished with: you
wouldn’t steal a sweater, so you shouldn’t steal movies because they are
property—it’s in the Constitution.

Horizon Comics Prods., Inc. v. Marvel Entertainment, LLC, No. 15-cv-11684 (D. Mass. filed Apr. 23, 2015): Newly filed; the claim is that movie Iron Man's armor infringes the copyright in another comic armored suit. All I'll say right now is that one part of the allegations is clearly silly: the complaint alleges that one movie poster is a copy of an image from plaintiffs' cartoon:

Radix image and Iron Man 3 poster

Three Point Landing is such a trope that it has its own supercut, as well as its own entry on TVTropes. (Warning: link goes to TVTropes. I accept no responsibility for the time you'll spend there.) I would kind of love to put together the exhibits for the motion to dismiss, actually.

Purina sued Blue Buffalo for false advertising of its dog
food as “grain free” and containing “no chicken by-product.” Purina issued
press releases about the suit and launched PetFoodHonesty.com, criticizing Blue
Buffalo for its alleged false advertising. Blue Buffalo denied the allegations
and alleged that the “independent testing” Purina relied upon for its claims
against Blue Buffalo was unreliable.Blue Buffalo countersued Purina for false advertising and defamation,
and added the ad agencies working with Purina.

PetFoodHonesty.com began with an “open letter” to pet owners
from Purina describing Blue Buffalo’s allegedly false advertising. Blue Buffalo
alleged that a number of statements about Blue Buffalo and the content of Blue
Buffalo’s dog food were false, e.g., “[T]esting conducted by an independent
laboratory revealed that several of Blue Buffalo’s top-selling ‘Life
Protection’ pet food products actually contain substantial amounts of poultry
by-product meal” and “Blue Buffalo is not being honest about the ingredients in
its pet food.” Blue Buffalo made similar allegations about Purina’s Facebook
and Twitter pages, with content developed by ad agency Blue State Digital.Purina also allegedly promoted its Honesty
website through Google ads developed by Blue State Digital, e.g., “A dog food
company is lying about its ingredients. Learn the facts.”

Under Lexmark,
Lanham Act false advertising liability isn’t limited to direct competitors. And
those who work with competitors to produce false ads can also be liable.There isn’t much caselaw on this, but what
there is has held that ad agencies can be liable under the Lanham Act as joint
tortfeasors for knowing participation.The ad agency defendants argued that they weren’t active participants in
preparing the ads and didn’t know or have reason to know of its falsity.

Blue Buffalo pointed out that the Lanham Act doesn’t have a
scienter requirement, but the ad agency defendants argued that the law “silently”
imposes such a requirement as to ad agencies. But the main case supporting
that, Gillette v. Wilkinson Sword,
relied on the pre-1988 version of the Lanham Act, which did have a knowledge
requirement for false advertising claims. Thus, given the express removal of “knowing”
as an element of Lanham Act false advertising, knowledge was not required.

The ad agency defendants also argued that Blue Buffalo
failed to satisfy Rule 9(b). Blue Buffalo pled that defendant PRCG Haggerty
“designed and built” the Honesty website, and that Blue State Digital
“developed the content” of the ads on Purina’s Facebook & Twitter accounts and
“arranged for these links to PetFoodHonesty.com to appear when Google.com users
search for terms related to Blue Buffalo.”

There’s a split over whether 9(b) applies to Lanham Act
claims “grounded in fraud,” but only one bound the court here: In re
NationsMart Corp. Sec. Litig., 130 F.3d 309 (8th Cir.1997). The Eighth Circuit
held that Rule 9(b) does not apply to § 11 Securities Act claims for false
statements and misrepresentations because proof of fraud is “not a prerequisite
to establishing liability,” and it would be unjust to dismiss a case because
plaintiffs alleged more than was necessary to recover under the law. So too here, because Lanham Act liability
doesn’t require fraud, even if Blue Buffalo did include fraud allegations.(This has always eemed to me to be the right
approach.)

Blue Buffalo’s Lanham Act claim met the notice pleading
standards of Rule 8(a). Blue Buffalo attached and cited several examples of allegedly
false statements and advertisements from Purina’s Honesty website, Facebook
page, Twitter account, and Google search results. Blue Buffalo also alleged
that the ad agencies participated in the design and creation of those ads. These allegations weren’t “particularly
robust,” but “it would be difficult for Blue Buffalo to plead many additional
facts at this time without the benefit of discovery.” And even if 9(b) did
apply, Blue Buffalo alleged sufficient details to put the ad agency defendants
on notice, quoting language from specific ads, and noting the dates on which
those ads ran.

PRCG/Haggerty argued that it was immune under CDA § 230.The court rejected this for two reasons: (1) CDA
immunity is an affirmative defense that a plaintiff is not required to plead
around (yikes!), and (2) given the allegations of the complaint, PRCG/Haggerty was
an “information content provider” for the content it created for the Honesty
website—allegations that PRCG/Haggerty “designed and built” the advertising
campaign were sufficient.

The court dismissed claims for false advertising under Missouri
common law, concluding that no such claim exists under Missouri law. Unfair
competition and unjust enrichment claims survived for the same reason as the
Lanham Act claims. The ad agency defendants also didn’t get the injurious
falsehood and defamation claims kicked out, because scienter can be alleged
generally even under Rule 9(b).

Unfair competition under Connecticut common law: the ad
agency argued that this claim could only be maintained against competitors. Blue Buffalo said the state
law tracked the Lanham Act, but under Connecticut law, “the word ‘competition’
as used in ‘unfair competition’ limits coverage to claims by competitors.”(This language came from an insurance case
but provided guidance.)Although state
trademark law follows the Lanham Act, false advertising/unfair competition isn’t
the same thing. Claim dismissed.

Finally, the court dismissed claims for violation of trade practice statutes of
different states because the counterclaim “summarily lists citations to
statutes of twenty-six different states,” which wasn’t enough to make a
plausible claim or provide notice.

Thursday, April 23, 2015

Steve "Wild Thing" Ray wrestled professionally in
the Universal Wrestling Federation (UWF) from 1990 to 1994. ESPN obtained films
of his wrestling matches and re-telecast them without his consent.He sued for invasion of privacy and
misappropriation of name.The Copyright
Act preempts state-law claims if (1) the work at issue is within the subject
matter of copyright as defined in § 102 and 103 of the Copyright Act, and (2) the
state law created right is equivalent to any of the exclusive rights within the
general scope of copyright as specified in § 106.

.

The films of Ray's wrestling performances were within the subject
matter of copyright law. Ray argued that ESPN's use of his "likeness"
was the true "focal point of this case." Not so. The cases he cited
were distinguishable because they involved use of an identity to sell something
else. Downing v. Abercrombie & Fitch, 265 F.3d 994 (9th Cir. 2001) (use in
ads suggesting endorsement of clothing seller); Brown v. Ames, 201 F.3d 654
(5th Cir. 2000) (use to sell "cassettes and CD's," "music
catalogs," "posters," and "videotapes," even though
the defendants "lacked copyrights"). “Brown specifically distinguished Baltimore Orioles—and in so doing, distinguished this case as
well—on the grounds that ‘the right of publicity claimed’ by the plaintiffs in Baltimore Orioles ‘was essentially a
right to prevent rebroadcast of games whose broadcast rights were already owned
by’ other parties.” I find this frustrating because it just announces a
conclusion: use in ads is use of likeness but use of the same copyrighted work
in a broadcast isn’t, at least if defendants own the copyright. But the result’s
right. “ESPN did not use Ray's likeness
or name in an advertisement without his permission to promote its commercial
products, and, as the district court correctly noted, Ray's ‘likenesses could
not be detached from the copyrighted performances that were contained in the
films."

And the rights were equivalent: they were "'infringed
by the mere act of reproduction, performance, distribution or display'" of
his performances. Dismissal affirmed.

Wednesday, April 22, 2015

The parties agreed to dismiss the case with prejudice on the day the redacted version of the opinion was released, so we won’t get more.
I'll have more to say later, but: Amazon continued to run ads saying "buy SeroVital [SanMedica's supplement product] at Amazon" in response to keyword searches on Google etc. even after it removed SeroVital from Amazon due to policy violations. The court declined to grant summary judgment on initial interest confusion, finding that

It is undisputed that during the Advertising Period, approximately [redacted] sponsored ads were generated. Out of those, there were approximately [redacted] clicks on the sponsored ads. The click to impression rate of the sponsored ads is approximately [redacted] percent. This rate sets the "upper limit on how often consumers really were lured in such a fashion." Amazon contends that of the [redacted] users that clicked on the ads for SeroVital, only [redacted] made any purchase at Amazon.com, a measly [redacted] percent." Although consumer purchases constitute [redacted] percent, the focus is not on the purchase rate but instead on the [redacted] percent rate that consumers were lured to Amazon's website. [Redacted]-percent, although a relative small number, is not so insufficient to suggest that there was no likelihood of confusion.

I do not think it is consistent with the rule of law to leave us to guess at the meaning of this. In the Tenth Circuit, 1-800 governs the IIC analysis, and we know from that case that 1.5% clickthrough isn't sufficient to make confusion likely; we also know that 7% confusion is usually not enough. But what is enough? Is this one of the unusual cases where 7% is enough? These redactions make it impossible to put this case in its proper context.

Separately, the court rejects SanMedica's 43(a) false advertising claim for failure to show materiality. SanMedica argued that the ads were literally false so that it didn't need to show materiality separately, but the court disagreed:

Amazon's misrepresentation was that consumers could purchase SeroVital on Amazon.com. But when consumers clicked on the sponsored ads, they were taken to a landing page that did not contain for sale any SeroVital products. Amazon's misrepresentation thus related to the marketing of the product, that is, the channel through which a consumer may purchase the product. Amazon's misrepresentation did not discuss the quality or characteristics of SeroVital which could potentially affect consumers' purchasing decisions.
Under the undisputed facts on this motion, no reasonable jury could find that Amazon's misrepresentation likely influenced a consumer's purchasing decision.

This seems ... wrong. Bait and switch is false advertising, too (something the court acknowledges in its analysis of state law). The misrepresentation that they could buy that particular product at Amazon was material to the people who clicked--that's the theory of trademark infringement! Alternatively, I suppose we could read the court as saying that we don’t
know whether consumers cared at all whether they were buying SeroVital—that is,
whether they cared about the source/producer—but there can still be trademark
infringement, because trademark doesn’t have a materiality requirement. Why is this sensible?

Tuesday, April 21, 2015

In recent years, federal courts
have been enforcing an “implicit” requirement for class certification, in
addition to the explicit requirements established in Rule 23 of the Federal
Rules of Civil Procedure. The ascertainability requirement insists that a
proposed class be defined in “objective” terms and that an “administratively
feasible” method exist for identifying individual class members and
ascertaining their class membership. This requirement has generated
considerable controversy and prevented the certification of many proposed
classes. The requirement has taken a particular toll on consumer class actions,
where potential class members are often unknown to the representative
plaintiffs, often lack documentary proof of their injury, and often do not even
know they have a legal claim at all.

This Note explores the
ascertainability requirement’s conceptual foundations. The Note first evaluates
the affirmative case for the requirement and finds it unpersuasive. At most,
Rule 23 implicitly requires something much more modest: that classes enjoy what
I call a minimally clear definition. The Note then argues that the
ascertainability requirement frustrates the purposes of Rule 23 by pushing out
of court the kind of cases Rule 23 was designed to bring into court. Finally,
the Note proposes that courts abandon the ascertainability requirement and
simply perform a rigorous analysis of Rule 23’s explicit requirements. This
unremarkable approach to class certification better reflects what the Rule says
and better advances what the Rule is for.

Lovers of the music of Frank Sinatra, The Beatles, Etta
James, and hundreds of other recording artists whose records were made before
February 15, 1972, may soon have a hard time hearing these great artists on any
satellite or Internet radio service. Recently, two federal district courts have
found that state laws were violated when satellite radio broadcaster Sirius XM
Radio included pre-1972 sound recordings in its broadcasts without the owners’
permission, but these courts did not consider-–and the parties did not
argue-–how the Supremacy Clause applies to those state law claims. This article
argues that state laws purporting to grant digital performance rights to
pre-1972 sound recordings are necessarily preempted by the Supremacy Clause of
the United States Constitution.

This article contends that enforcement of those state laws
would create a serious obstacle to “the accomplishment and execution of the
full purposes and objectives of Congress” in enacting the Digital Performance
Right in Sound Recordings Act of 1995 (“DPRA”). The DPRA reflects Congress’
careful balancing of interests and recognition of the need for an easily
administrable system of licensing, which Congress established through a complex
and comprehensive compulsory licensing system. The Supremacy Clause thus
preempts all state laws purporting to require licenses for digital performance
rights or payment of royalties for the use of such rights by Internet or
satellite radio stations beyond what is expressly provided for in the
compulsory licensing system established by the DPRA, because permitting
countless owners of individual pre-1972 sound recordings to assert claims for
royalties and other damages outside of the compulsory licensing system would
frustrate Congress’ goals in establishing that system.

Part I of this article provides a brief overview of the
federal rights at issue and the (very) brief history of performance rights in
sound recordings, noting the absence of any express state law recognition of a
performance right in sound recordings throughout most of the 20th century
(other than short-lived decisions in two states over seventy-five years ago
that focused on notices stamped on records purporting to prohibit a purchaser’s
use of sound recordings on radio rather than a true performance right). It is
only in very recent cases that courts in New York and California have
recognized state law performance rights. However, they did so without
considering Supremacy Clause preemption or how any state law performance rights
might conflict with the federal statutory compulsory license regime established
by the DPRA.

Part II of the article explains the relevant legislative
history and provisions of the DPRA governing the comprehensive licensing
system. That statutory license and rules governing it were established to
provide an efficient mechanism for digital Internet and satellite radio
services to operate in compliance with their legal obligations. In Part III,
the article explains Supremacy Clause doctrine and distinguishes the Supreme Court’s
opinion in Goldstein v. California, which rejected a Supremacy Clause challenge
to a state record piracy law in 1973. It demonstrates why neither the Court’s
decision in Goldstein nor the language of the Copyright Act’s express
preemption clause, which exempts state laws governing pre-1972 sound recordings
from statutory preemption, precludes conflict preemption under the Supremacy
Clause in the context of digital radio services that are subject to the federal
compulsory license.

Part IV of the article acknowledges that preemption of state
law protection for digital performances of pre-1972 sound recordings raises
equitable concerns, as it leaves some of this nation’s most treasured musical
artists uncompensated for use of their works by Internet and satellite
streaming services while the authors of more current works are compensated.
However, given the delicate balancing that has gone into Congress’ recognition
of a limited digital performance right and creation of a compulsory statutory
licensing system, any remedy for the inequity to owners of pre-1972 sound
recordings must be left to Congress. Allowing individual courts in individual
states to craft a patchwork of inconsistent remedies would disrupt the balance
struck by Congress and interfere with the functioning of the compulsory license
system for digital sound recording performances. This is a result that the
Supremacy Clause does not permit.

The Federal Circuit affirmed the refusal to register THE
SLANTS for entertainment (a band) because it was disparaging, with “additional
views” from one judge suggesting that it’s time for the Federal Circuit to
reconsider its precedent upholding §2(a) against First Amendment challenge.

The TTAB pointed to record evidence that THE SLANTS would
likely be perceived as referring to people of Asian descent, and that this was
offensive to a substantial component of such people.The band’s website displayed the mark next to
“a depiction of an Asian woman, utilizing rising sun imagery and using a
stylized dragon image,” and the applicant said that he selected the mark in
order to “own” the stereotype it represents. Nonetheless, “[t]he dictionary
definitions, reference works, and all other evidence unanimously categorize the
word ‘slant,’ when meaning a person of Asian descent, as disparaging,” and
there was record evidence of individuals and groups in the Asian community
objecting to Tam’s use of the word.

The test for disparagement asks “(1) what is the likely
meaning of the matter in question, taking into account not only dictionary
definitions, but also the relationship of the matter to the other elements in
the mark, the nature of the goods or services, and the manner in which the mark
is used in the marketplace in connection with the goods or services; and (2) if
that meaning is found to refer to identifiable persons, institutions, beliefs
or national symbols, whether that meaning may be disparaging to a substantial
composite of the referenced group.”

The TTAB appropriately took into account evidence gathered
with respect to a prior abandoned application for a version of the mark with an
Asian-inspired graphic; evidence outside the application can be relevant to
determine the manner of a mark’s use.Substantial evidence supported the Board’s finding that the mark
referred to people of Asian descent.Though the term “slant” has a number of alternative meanings, one of
them is (according to Tam’s own cited dictionaries) “a disparaging term for a
person of East Asian birth or ancestry,” (The American Heritage Dictionary of
the English Language), and “[a] person with slanting eyes, spec. one of Oriental
descent” (Oxford English Dictionary).Its innocuous meanings, and trademarks based thereupon, don’t prevent it
from being used in an offensive manner. Instead, those meanings require the PTO
to examine how the applicant uses the mark in the marketplace to determine its
likely meaning.

The factual record included Tam’s explanation of the band’s
name: “I was trying to think of things that people associate with Asians.
Obviously, one of the first things people say is that we have slanted eyes. . .
.” and “We want to take on these stereotypes that people have about us, like
the slanted eyes, and own them. We’re very proud of being Asian—we’re not going
to hide that fact. The reaction from the Asian community has been positive.” The
band’s website sets the mark against “a depiction of an Asian woman, utilizing
rising sun imagery and using a stylized dragon image.” Individuals and Asian groups perceived the
term as referring to people of Asian descent.

Likewise, substantial evidence supported the finding of
likely offensiveness to a substantial composite of people of Asian descent. The
definitions in the record “universally characterize the word … as disparaging,
offensive, or an ethnic slur when used to refer to a person of Asian descent.” The
Japanese American Citizens League published a brochure describing the term as a
“derogatory term” that is “demeaning” and “cripple[s] the spirit.” Theoffensivenatureofthe band’s name led to the cancellation of
the band’s scheduled performance at a conference for Asian youth. No survey or
other quantitative measure was required.

Tam’s constitutional challenges were also unavailing.
Binding precedent establishes that §2(a) doesn’t violate the First Amendment
because it doesn’t ban use of a mark. In re McGinley, 660 F.2d 481 (C.C.P.A.
1981). (Note that the majority doesn’t say anything about whether §43(a) might
provide protection; the reasoning that “lack of registration doesn’t bar use
and so it’s not a problem” is equally applicable to refusing §43(a) protection.)Nor was the §2(a) disparagement standard
unconstitutionally vague.Although there
is inherent difficulty in finding an objective measure, the two-part test is “sufficiently
precise to enable the PTO and the courts to apply the law fairly and to notify
a would-be registrant that the mark he adopts will not be granted a federal
registration.”

Tam argued that the arbitrary application of the standard,
allowing registrations for “slurs against homosexuals such as DYKES ON BIKES,”
violated due process. But due process was satisfied by a full opportunity to
prosecute an application and appeal any denial. Moreover, “allegations
regarding similar marks are irrelevant because each application must be
considered on its own merits.” Past errors don’t bind the PTO to improperly
register an applicant’s mark.

Tam finally argued that the rejection hinged on his and his
bandmates’ ethnic identities, thus denying him equal protection.Instead, the registration was rejected
because it used the mark in a disparaging matter; as the TTAB said, “[a]n
application by a band comprised of nonAsian-Americans called THE SLANTS that
displayed the mark next to the imagery used by applicant . . . would also be
subject to a refusal under Section 2(a).”

Judge Moore offered “additional views,” though this isn’t
styled a concurrence or a dissent.Judge
Moore wrote to argue that it was time to revisit McGinley’s holding on the constitutionality of §2(a).First Amendment jurisprudence on
unconstitutional conditions and commercial speech, she noted, has evolved
significantly since McGinley.

First, Judge Moore noted, trademarks are commercial speech
and thus “unquestionably … protected” (skipping over the question of whether a
mark is truthful and nonmisleading, but ok). And the mark here was more than a
source identifier.(Which, incidentally,
undermines the articulated justification for commercial speech—that it provides
consumers with useful information.)Instead, Tam sought to “reclaim” and “take ownership” of Asian
stereotypes. This name “weigh[ed] in on cultural and political discussions
about race and society that are within the heartland of speech protected by the
First Amendment.”

True, banning registration doesn’t mean banning use.But, as B&B
v. Hargis just told us, “[t]heLanhamActconfersimportantlegalrightsand benefits on trademark owners who register their marks.” These
benefits were both substantive and procedural, including nationwide rights even
without nationwide use and a presumption of validity/possible
incontestability.

Moreover, “[n]ot only is a disparaging trademark denied
federal registration, but it cannot be protected by its owner by virtue of a §
43(a) unfair competition claim.”We know
this because the Supreme Court made “clear” in Taco Cabana “that § 43(a) protection is only available for unregistered
trademarks that could have qualified for federal registration.” See also Donchez
v. Coors Brewing Co., 392 F.3d 1211, 1215 (10th Cir. 2004) (plaintiff must
establish that its mark is protectable to prevail in a claim under § 43(a));
Yarmuth-Dion, Inc. v. D’ion Furs, Inc., 835 F.2d 990, 992 (2d Cir. 1987)
(requiring a plaintiff to “demonstrate that his [unregistered] mark merits
protection under the Lanham Act”).“Thus,
no federal cause of action is available to protect a trademark deemed disparaging,
regardless of its use in commerce.”

And further, the Model State Trademark Bill was patterned
after the Lanham Act and includes similar prohibitions.“[V]irtually all states have adopted the
Model Bill and its disparagement provision. Thus, not only are the benefits of
federal registration unavailable to Mr. Tam, so too are the benefits of
trademark registration in nearly all states.”Plus, the common law mirrors the Lanham Act, so that means any state
protection is unlikely. The denial of any rights “severely burdens” the use of
disparaging marks.Indeed, the
content-based restrictions of §2(a) were adopted to reduce use of
government-deprecated marks, creating a chilling effect.

The unconstitutional conditions doctrine says that the
government cannot deny access to a benefit because of the recipient’s exercise
of constitutionally protected speech. Of course the government can grant
benefits predicated on compliance with certain policies, so “when the
Government appropriates public funds to establish a program it is entitled to
define the limits of that program.” However, Congress does not have the
authority to attach “conditions that seek to leverage funding to regulate
speech outside the contours of the program itself,” and outside the spending
power.

Here, Judge Moore reasoned, “[b]ecause the government denies
benefits to applicants on the basis of their constitutionally protected speech,
the ‘unconstitutional conditions’ doctrine applies.”The benefits of registration, while valuable,
weren’t monetary.“Unlike tangible
property, a subsidy, or a tax exemption, bestowal of a trademark registration
does not result in a direct loss of any property or money from the public fisc.
Rather, a trademark redefines the nature of the markholder’s rights as against
the rights of other citizens, depriving others of their rights to use the mark.”
This was a regulatory regime, not a government subsidy program.And registration doesn’t drain the public
fisc; PTO operations are funded by registration fees. There might be an
attenuated connection to spending, such as when ICE agents seize counterfeit
goods because of a registration, but that wasn’t enough.

Thus, §2(a) had to survive First Amendment scrutiny, and as
a content-based and viewpoint-based regulation it was presumptively invalid.
One can register a mark referring to a certain group in a positive,
nondisparaging manner, but not a mark referring negatively to the same
group.“Section 2(a) discriminates
against disparaging or offensive viewpoints,” contrary to R.A.V. v. City of St. Paul, which doesn’t allow the government to
punish only fighting words directed at one group. It was thus presumptively
invalid and had to satisfy strict scrutiny.

Comment: this is the wrong comparator.Defamation carried out with actual malice is
actionable, but lying positively about someone with actual malice is not
actionable, absent associated fraud (see Alvarez).The government may punish fighting words
without punishing hugging words, as long as it punishes all fighting words, or
some subset that’s related to the reason it can punish fighting words in the
first place.By the same logic, the mere
fact that only disparaging marks are barred is not itself a constitutional
problem.

Note an interesting presupposition here: that the bar on
registration restricts or suppresses commercial speech.Arguably the better analogy is a mandatory
disclosure requirement, which may raise the cost of commercial speech—just as
denying registration may raise the cost of using a particular disparaging
symbol as a mark—but is not judged under Central
Hudson, but rather under a test much closer to rationality review.We’d ask if the cost-raising requirement was
reasonably related to the government’s legitimate interests, and if it was not
so unduly burdensome as to be functionally speech-suppressive.One could come out either way on this
inquiry, it seems to me, but it’s not Central
Hudson.

Anyway, Judge Moore continued, the speech here—the use of a
disparaging mark—was lawful and not misleading.The governmente thus needed a substantial interest independent of
disapproving the speech’s message to justify the regulation. There was none;
Congress disapproved of the message carried by disparaging marks.That’s not a legitimate government interest. The
Supreme Court has “consistently held that the fact that protected speech may be
offensive to some does not justify its suppression.” It is a “bedrock principle
underlying the First Amendment . . . that the Government may not prohibit the
expression of an idea simply because society finds the idea itself offensive or
disagreeable.” (Note again the suppression language here.)

The alleged interest in not devoting government resources to
disparaging marks is makeweight/bunk.Nor did the ban harmonize longstanding state and federal law, because
§2(a) didn’t codify a common law bar on disparaging marks (which are different
from vulgar and misleading marks, which do have a history of state refusal to
recognize); §2(a) created new law.(Of
course, the ban does harmonize now,
as she pointed out above.)

Further, trademarks aren’t government speech.Publication on the Principal Register is not
for the purpose of communicating a particular message or viewpoint; it is for
providing notice that a mark has been registered.(That actually seems like a particular
message.)The government would only have
a substantial interest in avoiding the appearance of giving a stamp of approval
to disparaging marks if the public believed that trademarks carry the stamp of
government approval. But that’s not what
registration is.The PTO’s job is to
register marks that are functioning to identify and distinguish goods and
services in the marketplace. “The purpose served by trademarks, to identify the
source of the goods, is antithetical to the notion that the trademark is tied
to the government.”

Monday, April 20, 2015

Reed sued McGraw-Hill for violations of the Lanham Act, the
Sherman Act, and various state law torts. The parties are the only two
competitors in the business of providing construction product information
(CPI), which allows subscribers in the building trade to bid for jobs.They sell subscriptions to “nationwide
searchable databases that can filter projects based on the user’s preferences.
For example, a user can search for library projects in Topeka, Kansas, worth
more than three million dollars, that need plumbing in the next two months.”
The CPI services provide plans, bidding information, and contact information
for the planner, architect, or general contractor on the job. Reed alleged that
McGraw-Hill surreptitiously accessed Reed’s database (Connect) and used that
access to generate false or misleading product comparisons with McGraw-Hill’s
Dodge Network that it distributed to prospective Reed customers.

CPI customers prefer a service that lists more projects over
one that lists fewer, so the parties compete to have the most projects in their
databases. Their user agreements limit permissible use of the information, and
the agreements don’t include “creating comparisons with competing CPI
providers.”(That prohibition of
comparisons seems anticompetitive and against public policy, as opposed to a
prohibition on scraping data, which has different justifications.)

Around 2004, McGraw-Hill began to access Reed Connect in
order to create favorable comparisons; to do so, it needed to know how many
projects were listed on Reed Connect.It
also wanted to be aware of changes in the marketplace and to ensure that Reed
was not listing significant projects that it had missed. McGraw–Hill paid
consultants—“referred to internally as ‘spies’”—to subscribe to Reed Connect. They
would sometimes falsely claim that the fake entities they created to subscribe
were associated with actual builders and contractors. McGraw–Hill paid these
consultants $3.45 million in cash and personal checks and listed the expenses
on its books as “Stationery and Supplies,” or “Magazines and Books.”

McGraw-Hill hired Roper to generate product comparisons,
but, according to Reed, Roper wasn’t independent, as it claimed. Rather, Roper
“did little more than send someone to sit in a room and watch a McGraw–Hill
employee run searches on the two services,” without ensuring that the two
searches were fairly comparable. McGraw–Hill allegedly used one of its
otherproducts in the tests but said
that it had used the Dodge Network.The
searches were selected so as to emphasize McGraw–Hill’s strengths and minimize Reed’s
by limiting comparisons to projects worth more than $1 million, whereas Reed
was stronger below $1 million. In
addition, McGraw-Hill allegedly ran searches to get projects that needed to be
completed expeditiously (ASAPs) from its database but not from Reed’s database.
The result was a report in which McGraw–Hill boasted “71% more planning
projects, 78% more bidding projects, and 71 % more digitized plans and
specifications.”

McGraw-Hill also made ad hoc comparisons of the services in
response to questions from customers. McGraw–Hill frequently advised customers
to search for a particular project in both services, knowing that the suggested
project would be found only in the Dodge Network, as well as suggesting state
and local comparisons that were generally similar to the Roper reports in both
content and methodology. McGraw–Hill touted a five-to-one advantage in projects
“exclusive” to McGraw–Hill. Reed alleged that the true ratio was closer to
2.6–to–1.

“On at least a few occasions, McGraw–Hill used its access to
Reed Connect to find new projects.” McGraw–Hill said these were “isolated
potential violations of McGraw–Hill’s rules in which McGraw–Hill may have used
Reed Connect to obtain a source of project leads.” The parties agree that
McGraw–Hill broke its own rules at least a few times and used its access to
Reed Connect for purposes other than generating comparisons.

Reed sued in 2009; its RICO claims were dismissed, but the
other claims proceeded. At the motion to dismiss stage, Reed alleged that no
fewer than 231 customers reported noticing the Roper Reports and were
influenced by their contents. “Discovery has not borne out that claim,” though
Reed had one customer declaration showing that the Roper reports influenced
purchases.Reed also argued that it was
injured because it was forced to price its services lower than it otherwise
would have absent the misconduct. It offered Dr. Frederick Warren–Boulton’s
testimony in support of this claim; McGraw-Hill moved to exclude his testimony.

Dr. Warren-Boulton opined on four questions: Was there a
distinct national market for CPI sufficient to trigger § 2 of the Sherman Act? Did
McGraw–Hill exercise power in that market? Did McGraw–Hill’s misconduct allow
it to keep its market power? Did McGraw–Hill’s misconduct damage Reed? To
support his opinions, he conducted statistical regression analyses of the
parties’ pricing and service data in an attempt to isolate the effect of the
variable at issue here (McGraw-Hill’s alleged misconduct).

In order to isolate the price effects of the misconduct,
Warren-Boulton compared the parties’ prices for national services during the
relevant period with the parties’ prices for local services during the relevant
period. This was based on the assumption
that national pricing was affected by McGraw–Hill’s misconduct significantly
more than local pricing, and that the effects of McGraw–Hill’s misconduct would
grow weaker over time (because the misconduct ceased in approximately 2008). If
the difference between each party’s price index declined over the relevant
period, and that decline couldn’t be attributed to any other observable factor,
then Warren-Boulton would consider that proof that McGraw–Hill’s malfeasance
worked a price effect.

McGraw-Hill objected to the assumptions of the model.Warren-Boulton acknowledged that Reed
presumably had been becoming a more effective competitor, though the local
market had always been effective; if that were true—and the evidence suggested
it was—McGraw would have to cut its national prices but not its local prices,
adequately explaining the narrowing gap without the presence of any misconduct.
This was a significant flaw that, coupled with other flaws, rendered the model
inadmissible.

McGraw-Hill also argued that Warren-Boulton’s model had to
be wrong because he found a price effect with no corresponding quantity effect:
he found that “the misconduct differentially affected the prices that customers
were willing to pay for each of the two competitors’ services, but had no
effect on how much customers chose one over the other.”That contradicted standard microeconomic
theory, which predicted that in almost all markets (excluding perfectly
inelastic goods, Giffen
goods, and Veblen goods, none of which were involved here), increased price
decreases consumption.

Warren-Boulton responded that the CPI market had negotiated
prices, so there could be a price effect without a quantity effect “because the
price each consumer is willing to pay is a function of the price of the
competing product and the relative value of the competing product and the
negotiated product.”But that would only
be true if Reed and McGraw-Hill had a bigger range of prices they’d accept than
prices that consumers would offer to pay.But there was no evidence to support that, and no reason to believe that
the CPI market had these “unusual economic characteristics.”

McGraw-Hill also convinced the court that construction
volume was an important omitted variable in the analysis. National firms were
hit harder by the 2008 recession than state and local firms, and price indices
were in fact highly negatively correlated with construction volume data. The
omission of a major variable was fatal to one of Warren-Boulton’s models.

When he added construction volume data, “a new problem
arose: multicollinearity.” This happens when the independent variable is
correlated with one of the control variables, making it impossible to isolate
the effect of the independent variable on the dependent variable. “Because of
the correlation between the explanatory variables, there is insufficient
variation in the data set to produce statistically significant results.”As it turns out, construction volume was
highly correlated with both the independent and dependent variables. This made
the independent variable (here, the misconduct) appear not to have statistical
significance.

Warren-Boulton defended his choices by showing that using
construction volume alone didn’t explain the prices and in fact had weird
results (increasing prices for one party but decreasing them for another, and
vice versa in different markets), but the court was unconvinced.Among other things, Warren-Boulton was unable
to explain his decision to pool local and national data in light of his
expertise, and running the numbers without pooling produced opposite results
(no price effect). Although there was no reason to believe that his judgment
was “anything other than perfectly sensible,” he had no methodological
explanation for his judgment, and a different judgment would also be reasonable
and totally change the outcome.

Finally, and relatedly, the methodology he used was too
manipulable to qualify as “scientific.”The choice of end dates for measuring when the effect of McGraw-Hill’s
misconduct fully dissipated was more or less arbitrary. That’s not fatal on its
own; any statistical model requires some judgment. As long as the model is
“robust with respect to different choices of arbitrary points, there is no
pressing issue.” But here the choice of the end-date had an
outcome-determinative effect; changing the end dates within a “very
conservative” range produced a result of no price effect.Generally, choice of a reasonable timeframe
is an issue of credibility for the jury.“But where, as here, very minor changes in arbitrarily selected model
parameters can entirely alter the model’s conclusions, that model is
insufficiently robust to withstand the scrutiny of Rule 702.”

Thus, Reed failed to meet its burden of showing that
Warren-Boulton’s testimony was sufficiently reliable to be admissible.

Turning to the false advertising, Reed identified a number
of false or misleading statements:

First, the court had to identify what was “advertising and
promotion”; McGraw-Hill argued that only some of the misrepresentations were
sufficiently disseminated to count. Should the ad hoc statements be considered
together or separately? The court decided to take McGraw-Hill’s promotional
efforts as a whole.Unlike individual
conversations that aren’t advertising or promotion, “the ad hoc comparisons at
issue in this case were an undisputed part of a broader campaign to compete
with Reed and to tout the supposed advantages of the Dodge Network over Reed
Connect.”There was also evidence that
McGraw–Hill management directed individual salespeople to disseminate several
of the allegedly false or misleading statements. “There is little difference
between this and a traditional advertising campaign in either purpose or
effect. … [T]he mere fact that the promotional campaign took the form of
individual conversations does not mean that it is not advertising when taken as
a whole.”

Turning to falsity, the court began with Roper’s involvement
and the representations that Roper, an “independent” firm, “oversaw the entire
comparison process [and] ensured that comparable categories were used” to
evaluate the competing services. McGraw–Hill similarly represented that the
reports were “independent,” “objective,” “audited,” and “unbiased.” Roper’s “project director” testified that he
made sure that the searches conducted were “worded similarly,” but he also told
a colleague that McGraw–Hill paid Roper “just to say we oversaw the whole
process.” He testified that he “did not know if [the searches were conducted]
using Network or Dataline, another McGraw–Hill service.” Though the McGraw-Hill
employee who conducted the comparisons testified that Roper “verified the
numbers,” “made sure that they were not being misrecorded,” and “ensured that
the comparisons were run in similar ways and that one search mirrored another search,”
that didn’t make the truth of the claims uncontroverted. A reasonable jury
could find literal falsity in the claims that the reports were “independent,”
“objective,” and “overs[een]” by Roper.

Next set of statements: The Roper Reports and the ad hoc
comparisons allegedly overstated the number of projects in McGraw Hill’s
database as compared to Reed’s database by using the wrong database; exluding
some Reed projects (including some utilities projects and the ASAP projects it
counted for itself); double-counting some McGraw-Hill projects; and selecting
search criteria designed to highlight its relative strengths. Reed alleged
literal falsity in the use of a different database, Dataline, for at least one
Roper Report, the double-counting of some of McGraw-Hill’s projects, and the
imbalanced treatment of ASAP projects.Reed failed to provide evidence that the Dataline listings weren’t in
fact included in “Dodge electronic listings,” so its first literal falsity
claim failed.Likewise, the Dodge
network listed some projects on dual tracks as multiple projects, but this is a
perfectly sensible way to count: a school might seek asbestos removal while
simultaneously planning a new wing.Reed
didn’t provide evidence that “projects” couldn’t have this meaning, so that
single institutions could have multiple “projects.”

It was undisputed that a search for projects whose bid date
was ASAP would yield more results in McGraw-Hill’s database, because Reed
listed ASAP projects by simply leaving the bid-date field blank. McGraw–Hill characterized
that as an error in Reed’s search algorithm. Reed didn’t offer evidence that
the statement that both comparisons were based on searches for projects whose
bid-date was listed as “ASAP” was false.

What about stale “Executive Briefs” citing data from a
“recent” comparison from 2007 when there were more recent comparisons?The briefs didn’t claim to use the most recent comparison, and words like
“recent” are subject to a range of reasonable interpretations, so even in 2012
that wasn’t literally false. “[T]he Lanham Act does not require that
comparisons listed as recent be based on the most current available data.”

False claims of exclusivity: Reed offered some
circumstantial evidence that projects that McGraw-Hill claimed were exclusive
to it were also in Reed’s database. On at least one occasion, Reed searched its
database the day after McGraw–Hill told a customer that seven projects were
exclusive to its service and found six out of the seven purportedly exclusive
projects. A reasonable juror could find literal falsity.

Claimed project ratios of 5:1 in exclusive projects and 3:1
in all projects: Reed’s expert came up with substantially smaller ratios, but
McGraw-Hill argued that she just used different means of calculation. Reed
presented “plenty” of evidence that McGraw–Hill’s employees did not know how
the ratios were calculated when they distributed them. So, the evidence was that
other calculations, of contested accuracy, showed significantly lower
advantages for McGraw–Hill than the ratios it touted, but there was no evidence
on how it calculated those ratios. A reasonable juror could find literal
falsity.

For the literally false statements, consumer deception would
be presumed. For the rest, evidence of deliberate deception or consumer
confusion would be required.Reed first
tried to show deliberate deception.(1)
McGraw-Hill spent a lot of money getting access to Reed Connect and generating
the Roper Reports. (2) McGraw–Hill conducted its comparisons when they would be
most advantageous to McGraw–Hill and “crafted search queries designed to
maximize the McGraw–Hill projects counted while minimizing the projects counted
for Reed.” (3) McGraw–Hill convinced consumers that the Roper Reports were
independent. The court found this evidence insufficient to allow a reasonable
jury to find deliberate deception, only recklessness.

As for consumer confusion, Reed submitted one declaration to
show confusion.But McGraw-Hill’s
evidence of lack of confusion was “overwhelming” and one declaration was not
enough for a reasonable jury to find that a substantial number of consumers
were misled by the challenged statements.Reed identified one customer “out of a national market that both parties
concede contains at least 70,000 customers,” and the declarant might not
actually have made the purchasing decisions at his company.

The court then analyzed the materiality of the remaining,
possibly literally false, statements: (1) the statements about Roper’s
involvement, (2) the statements touting exclusives to certain individual
customers, and (3) the statements about the 5:1 and 3:1 project ratios. No
reasonable juror could conclude that any of these statements was material.Interpreting the Second Circuit’s adherence
to older language about misrepresenting “an inherent quality or characteristic
of a product,” the court concluded that this phrase meant “likely to influence
purchasing decisions.”

Reed’s evidence failed for the same reason its evidence of
deception failed: at worst, one customer relied on the misrepresentations.“Every other customer testified that the
Roper Reports and ad hoc comparisons were immaterial.” Summary judgment on the
Lanham Act claims was granted.

McGraw-Hill also sought to get rid of claims that its
disparaging ads constituted monopolization and attempted monopolization in
violation of Section 2 of the Sherman Act. It is very hard to show an antitrust
violation through misleading advertisements, because the test has a bunch of
weird presumptions that aren’t really consistent with how false advertising
works. You’re better off with the Lanham Act.

In the Second Circuit, “a plaintiff asserting a
monopolization claim based on misleading advertising must overcome a
presumption that the effect on competition of such a practice was de minimis”
and therefore insufficient to sustain an antitrust action. To rebut that
presumption, a plaintiff must show that the challenged statements were “[1]
clearly false, [2] clearly material, [3] clearly likely to induce reasonable
reliance, [4] made to buyers without knowledge of the subject matter, [5]
continued for prolonged periods, and [6] not readily susceptible of
neutralization or other offset by rivals.”Reed’s arguments that the use of Roper as a third party guarantor
triggered special rules, and that an exception should exist for two-competitor
markets, were unavailing.

Plaintiffs don’t need to win on every factor to rebut the
presumption. The inquiry is simply “whether a disparaging advertisement is so
deceptive as to constitute anticompetitive exclusionary conduct.” The
presumption formalized the rule that “[i]solated business torts, such as
falsely disparaging another’s product, do not typically rise to the level of a
Section 2 violation unless there is a harm to competition itself.”

There was, as noted above, sufficient evidence of literal
falsity for some statements.But literal
falsity is not clear falsity—otherwise the word “clear” would be meaningless.
(This seems to me an example of courts seizing on terms that were basically
accidental. The literally false/misleading distinction in Lanham Act jurisprudence
is relatively new; and anyway there is no reason to think that courts deciding
antitrust cases were thinking about the Lanham Act in when they were
formulating the antitrust test.)So what
does “clearly false” mean?

Epistemologically speaking, falsity
is an absolute: a statement is either false or it is not. But the level of
justification of one’s belief in a statement’s falsity can vary by degree.
Thus, while a statement is either false or it is not, it can be more or less
“clearly” false, as measured by how much thought or effort one has to put into
determining its veracity or how confident one is in its falsity—or, put another
way, how obvious or apparent its falsity is in light of the statement itself
and its relationship to the state of the world.

A reasonable person could believe that Roper’s involvement
in its reports was not a sham, given that a Roper employee was present during
the challenged comparisons and made sure that the individual search terms used
were comparable. A reasonable person
could likewise believe from the evidence that, “upon learning that McGraw–Hill
was touting exclusive projects that Reed did not have in its database, Reed
scurried to add them, and, therefore, the claim of exclusivity was true when
made.” And there was still no evidence in the record about how the claims about
the 5:1 and 3:1 ratios were calculated. So the evidence was insufficient to show that
the challenged statements were clearly false.

Obviously, the evidence also didn’t show that the statements
were clearly material or likely to induce reasonable reliance.As for customers’ knowledge, Reed argued
that, because its customers lacked knowledge of complex data and statistical
analysis, they were unable to discern the accuracy of McGraw–Hill’s claims.The court disagreed—“buyers do not need a
degree in statistics to count how many projects of a given type, value, and
location appear in either service,” and there was evidence that “plenty of
buyers conducted their own analyses when deciding which service to purchase.”

Exposure to the claims was prolonged, but that didn’t
help.Reed argued that McGraw-Hill’s
statements weren’t susceptible to neutralization because they couldn’t easily
be disproven and because McGraw-Hill tried to keep some of the comparisons from
Reed.But the challenged statements were
simple sums of how many projects were in each database, and Reed definitely
knew about them. As a result of the combination of the factors, the presumption
of de minimis effect on competition held and McGraw-Hill got summary judgment.

Fraud: Reed alleged that McGraw–Hill defrauded it by falsely
representing that the “consultants” McGraw–Hill hired to access Reed Connect were
not McGraw–Hill employees. New York law, which applied because the fraud was
carried out in New York, requires that the alleged losses stemming from a fraud
“be the direct, immediate, and proximate result of the misrepresentation,” and
that those losses be independent of other causes. But Reed alleged lost profits
due to lost customers stemming from McGraw–Hill’s misleading ads, based on
information gathered from the fraud.That wasn’t sufficiently proximate.

Trade secrets and misappropriation of confidential
information: information in the database was not secret. “Reed’s CPI lost its
trade-secrets status—if it ever had any—when Reed gave out free trial
subscriptions unaccompanied by any contractual restrictions on their use.” Tortious
interference: Reed couldn’t prove injury to its business relationship with
customers, because of the lack of harm evidence detailed above. Unjust
enrichment: Again, the undisputed
evidence suggested that the only customer Reed allegedly “lost” because of
McGraw–Hill’s misconduct didn’t make any purchasing decisions.

Unfair competition: McGraw-Hill conceded that on “two or three
isolated” occasions, McGraw-Hill employees used project leads that they
acquired through their illicit access to Reed Connect in their own database.
Reed argues this constituted misappropriation. Applying New York law again as
the principal locus of the defendant’s conduct, this claim survived. INS v. AP provided the framework, though
large portions of New York’s unfair competition jurisprudence are preempted by
the Copyright Act. Still, New York protects business people from “all forms of
commercial immorality, the confines of which are marked only by the
‘conscience, justice and equity of common-law judges.’” The defendant must have
taken something in which the plaintiff had a property right, and that
constituted free riding on the plaintiff’s efforts.

McGraw-Hill argued that there was no property interest in
project counts, but there could be in the underlying data.“McGraw–Hill used phony entities to
surreptitiously subscribe to Reed’s database service, then took the projects it
found there and added them to its own database. The project listings are the
parties’ stock in trade. Reed has a property interest—or at least a “quasi”
property interest—in its project leads.” When McGraw–Hill put those leads into
its own database, it “free r[ode]” on the significant effort Reed expended to
collect projects. Lack of significant damage or broad scope wasn’t dispositive
at this stage.

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